What changed in this filing

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Item 1. Financial Statements

2021-02-09 compared with 2020-11-10 · 193 added, 111 removed, 456 unchanged (40% of the section changed)

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(In thousands, except share and per share data)

October 2, 2020 July 3, 2020

January 1, 2021 July 3, 2020

Current assets:

Cash and cash equivalents $ 109,113 $ 226,838

Accounts receivable, net of allowance for credit losses of $ 1,422 and $ 1,451 at October 2, 2020 and July 3, 2020, respectively

Restricted cash 61,626 —

Accounts receivable, net of allowance for credit losses of $ 1,495 and $ 1,451 at January 1, 2021 and July 3, 2020, respectively

120,852 120,438

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Accounts payable $ 48,175 $ 41,877

Deferred consideration 61,626 —

Accrued expenses 26,540 23,794

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Income taxes payable 4,117 4,117

Long-term debt 160,000 —

Operating lease liabilities 84,335 66,981

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85,000,000 shares authorized;

55,044,702 and 54,702,322 shares issued and outstanding at October 2, 2020 and July 3, 2020, respectively

55,128,763 and 54,702,322 shares issued and outstanding at January 1, 2021 and July 3, 2020, respectively

Additional paid-in capital 1,092,723 1,074,667

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(In thousands, except per share data)

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

Net revenues $ 210,676 $ 193,913 $ 416,297 $ 371,217

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Interest income 60 312 132 1,499

Interest expense ( 73 ) — ( 73 ) —

Other expense, net ( 981 ) ( 351 ) ( 1,827 ) ( 1,785 )

Income before income taxes 17,119 20,786 35,115 38,015

Tax provision (benefit) 2,198 ( 2,018 )

Income tax provision 4,433 5,110 6,631 3,092

Net income $ 12,686 $ 15,676 $ 28,484 $ 34,923

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Pension benefit plan, net of tax 31 8 62 15

Total other comprehensive (loss) income, net of tax ( 70 ) 82

Total other comprehensive loss, net of tax ( 627 ) ( 184 ) ( 697 ) ( 102 )

Total comprehensive income $ 12,059 $ 15,492 $ 27,787 $ 34,821

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(In thousands)

For the First Quarter Ended October 2, 2020

For the Second Quarter Ended January 1, 2021

Common Stock Additional

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Shares Amount

Balance at October 2, 2020 55,045 $ 550 $ 1,082,044 $ 328,253 $ ( 2,955 ) $ 1,407,892

Issuance of common stock under employee stock incentive plans 38 1 1 — — 2

Issuance of common stock under employee stock purchase plan 46 — 3,184 — — 3,184

Stock-based compensation — — 7,494 — — 7,494

Net income — — — 12,686 — 12,686

Other comprehensive loss — — — — ( 627 ) ( 627 )

Balance at January 1, 2021 55,129 $ 551 $ 1,092,723 $ 340,939 $ ( 3,582 ) $ 1,430,631

For the Second Quarter Ended December 27, 2019

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance at September 27, 2019 54,534 $ 545 $ 1,049,952 $ 245,990 $ ( 1,209 ) $ 1,295,278

Issuance of common stock under employee stock incentive plans 29 — — — — —

Purchase and retirement of common stock ( 5 ) — ( 375 ) — — ( 375 )

Stock-based compensation — — 6,661 — — 6,661

Net income — — — 15,676 — 15,676

Other comprehensive loss — — — — ( 184 ) ( 184 )

Balance at December 27, 2019 54,558 $ 545 $ 1,056,238 $ 261,666 $ ( 1,393 ) $ 1,317,056

For the Six Months Ended January 1, 2021

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance at July 3, 2020 54,702 $ 547 $ 1,074,667 $ 312,455 $ ( 2,885 ) $ 1,384,784

Issuance of common stock under employee stock incentive plans 382 4 — — — 4

Issuance of common stock under employee stock purchase plan 46 — 3,184 — — 3,184

Purchase and retirement of common stock ( 1 ) — ( 66 ) — — ( 66 )

2 unchanged sentences

Other comprehensive loss — — — — ( 697 ) ( 697 )

Balance at October 2, 2020 55,045 $ 550 $ 1,082,044 $ 328,253 $ ( 2,955 ) $ 1,407,892

For the First Quarter Ended September 27, 2019

Balance at January 1, 2021 55,129 $ 551 $ 1,092,723 $ 340,939 $ ( 3,582 ) $ 1,430,631

For the Six Months Ended December 27, 2019

Common Stock Additional

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Net income — — — 34,923 — 34,923

Other comprehensive income — — — — 82 82

Balance at September 27, 2019 54,534 $ 545 $ 1,049,952 $ 245,990 $ ( 1,209 ) $ 1,295,278

Other comprehensive loss — — — — ( 102 ) ( 102 )

Balance at December 27, 2019 54,558 $ 545 $ 1,056,238 $ 261,666 $ ( 1,393 ) $ 1,317,056

The accompanying notes are an integral part of the consolidated financial statements.

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(In thousands)

First Quarters Ended

October 2, 2020 September 27, 2019

Six Months Ended

January 1, 2021 December 27, 2019

Cash flows from operating activities:

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Cash flows from investing activities:

Purchases of property and equipment ( 10,978 ) ( 9,595 )

Acquisition of business, net of cash acquired ( 243,637 ) ( 96,502 )

Purchases of property and equipment ( 24,753 ) ( 20,919 )

Proceeds from sale of investment 1,538 —

Net cash used in investing activities ( 266,852 ) ( 117,421 )

1 unchanged sentence

Proceeds from employee stock plans 3,188 3

Borrowings under credit facilities 160,000 —

Purchase and retirement of common stock ( 66 ) ( 14,937 )

Net cash used in financing activities ( 64 ) ( 14,559 )

Effect of exchange rate changes on cash and cash equivalents 397 ( 287 )

Net increase (decrease) in cash and cash equivalents 12,284 ( 96,633 )

Cash and cash equivalents at beginning of period 226,838 257,932

Cash and cash equivalents at end of period $ 239,122 $ 161,299

Net cash provided by (used in) financing activities 163,122 ( 14,934 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 763 84

Net decrease in cash, cash equivalents and restricted cash ( 56,099 ) ( 75,895 )

Cash, cash equivalents and restricted cash at beginning of period 226,838 257,932

Cash, cash equivalents and restricted cash at end of period $ 170,739 $ 182,037

Cash paid during the period for:

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These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended July 3, 2020 which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 18, 2020.

The results for the first quarter are not necessarily indicative of the results to be expected for the full fiscal year.

The results for the second quarter and six months ended January 1, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation .

All references to the first quarter of fiscal 2021 are to the quarter ended October 2, 2020.

There were 13-weeks during the first quarters ended October 2, 2020 and September 27, 2019, respectively.

All references to the second quarter of fiscal 2021 are to the quarter ended January 1, 2021.

There were 13-weeks during the second quarters ended January 1, 2021 and December 27, 2019, respectively.

There were approximately 26-weeks during the six months ended January 1, 2021 and December 27, 2019, respectively.

U SE OF E STIMATES

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The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers , (“ASC 606”).

Mercury is a leading technology company serving the aerospace and defense industry, positioned at the intersection of high-tech and defense.

Revenues are derived from the sales of products that are grouped into one of the following three categories:

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Revenue recognized at a point in time generally relates to contracts that include a combination of components, modules and sub-assemblies, integrated subsystems and related system integration or other services.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 64 % and 73 % of revenues for the first quarters ended October 2, 2020 and September 27, 2019, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 61 % and 62 % of revenues for the second quarter and six months ended January 1, 2021, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 79 % and 76 % of revenues for the second quarter and six months ended December 27, 2019, respectively.

The Company also engages in long-term contracts for development, production and service activities and recognizes revenue for performance obligations over time.

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The Company’s cost reimbursable contracts typically include cost-plus fixed fee and time and material contracts.

Total revenue recognized under long-term contracts over time was 36 % and 27 % of total revenues for the first quarters ended October 2, 2020 and September 27, 2019, respectively.

Total revenue recognized under long-term contracts over time was 39 % and 38 % of total revenues for the second quarter and six months ended January 1, 2021, respectively.

Total revenue recognized under long-term contracts over time was 21 % and 24 % of total revenues for the second quarter and six months ended December 27, 2019, respectively.

The Company generally does not provide its customers with rights of product return other than those related to assurance warranty provisions that permit repair or replacement of defective goods over a period of 12 to 36 months.

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Contract balances are reported in a net position on a contract-by-contract basis.

The contract asset balances were $ 108,754 and $ 90,289 as of October 2, 2020 and July 3, 2020, respectively.

The contract asset balance increased due to growth in revenue recognized and timing of billable events under long-term contracts over time during the first quarter ended October 2, 2020.

The contract liability balances were $ 27,655 and $ 19,892 as of October 2, 2020 and July 3, 2020, respectively.

The increase was due to a greater number of long-term contracts with advanced billings across multiple programs.

Revenue recognized for the first quarter ended October 2, 2020 that was included in the contract liability balance at July 3, 2020 was $ 9,030 .

Revenue recognized for the first quarter ended September 27, 2019 that was included in the contract liability balance at June 30, 2019 was $ 5,376 .

The contract asset balances were $ 119,346 and $ 90,289 as of January 1, 2021 and July 3, 2020, respectively.

The contract asset balance increased due to growth in revenue recognized and timing of billable events under long-term contracts over time during the six months ended January 1, 2021.

The contract liability balances were $ 33,887 and $ 19,892 as of January 1, 2021 and July 3, 2020, respectively.

The increase was due to a greater number of long-term contracts with milestone billings across multiple programs.

Revenue recognized for the second quarter and six months ended January 1, 2021 that was included in the contract liability balance a t July 3, 2020 was $ 4,336 and $ 13,366 , respectively.

Revenue recognized for the second quarter and six months ended December 27, 2019 that was included in the contract liability balance at June 30, 2019 was $ 2,898 and $ 8,274 , respectively.

R EMAINING P ERFORMANCE O BLIGATIONS

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The definition of remaining performance obligations excludes contracts with original expected durations of less than one year, as well as those contracts that provide the customer with the right to cancel or terminate the order with no substantial penalty, even if the Company’s historical experience indicates the likelihood of cancellation or termination is remote .

As of October 2, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 287,526 .

As of January 1, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations w as $ 410,275 .

The Company expects to recognize approximately 69 % of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.

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Weighted-average shares were calculated as follows:

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

Basic weighted-average shares outstanding 55,070 54,548 54,976 54,468

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Diluted weighted-average shares outstanding 55,434 55,001 55,385 55,037

Equity instruments to purchase 203 and 154 shares of common stock were not included in the calculation of diluted net earnings per share for the first quarters ended October 2, 2020 and September 27, 2019, respectively, because the equity instruments were anti-dilutive.

Equity instruments to purchase 114 and 2 shar es of common stock were not included in the calculation of diluted net earnings per share for the second quarter and six months ended January 1, 2021, respectively, because the equity instruments were anti-dilutive.

Equity instruments to purchase 419 and 297 shares of common stock were not included in the calculation of diluted net earnings per share for the second quarter and six months ended December 27, 2019, respectively, because the equity instruments were anti-dilutive.

R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS

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This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.

Effective July 4, 2020 the Company adopted ASU 2017-04, Intangibles—Goodwill and Other (Topic 350):

Effective July 4, 2020 the Company adopted ASU No.

2017-04, Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment .

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Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit.

This adoption did not have an impact on the Company's consolidated financial statements or related disclosures.

This adoption did not have a material impact on the Company's consolidated financial statements or related disclosures.

Effective July 4, 2020 the Company adopted ASU No.

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Costs of arrangements that do not include a software license should be accounted for as a service contract and expensed as incurred.

This adoption did not have an impact to the Company's consolidated financial statements or related disclosures.

This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.

Effective October 3, 2020, the Company adopted SEC Final Rule Release No.

33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses, which includes amendments to its rules and forms related to the disclosure of financial information regarding acquired or disposed businesses.

The amendments are intended to improve the financial information about acquired or disposed businesses provided to investors, facilitate more timely access to capital, and reduce the complexity and costs of preparing disclosures.

Among other changes, the amendments impact SEC rules relating to:

the definition of “significant” subsidiaries, requirements to provide financial statements for “significant” acquisitions, and the formulation and usage of pro forma financial information.

The final rule is applicable for fiscal years beginning after December 31, 2020, with early adoption permitted as long as all amendments are adopted in their entirety.

The Company has early adopted this final rule in conjunction with our acquisition of Physical Optics Corporation ("POC") on December 30, 2020.

This adoption did not have a material impact on the Company's consolidated financial statements or related disclosures.

P HYSICAL O PTICS C ORPORATION A CQUISITION

On December 7, 2020, the Company signed a definitive agreement to acquire POC for a purchase price of $ 310,000 , subject to net working capital and net debt adjustments.

On December 30, 2020, the transaction closed and the Company acquired POC.

Based in Torrance, California, POC more than doubles the Company's global avionics business and expands its collective footprint in the platform and mission management market.

The Company funded the acquisition through a combination of cash on hand and the Company's existing revolving credit facility (the "Revolver").

As of January 1, 2021, the Company held $ 61,626 of Restricted cash and recorded a Deferred consideration liability for a purchase price payout to the employee shareholders of POC.

This payout was made during the third quarter of fiscal 2021.

The following table presents the net purchase price and the fair values of the assets and liabilities of POC on a preliminary basis:

Consideration transferred

Cash paid at closing $ 251,229

Additional consideration to be transferred 61,626

Working capital and net debt adjustment ( 4,737 )

Less cash acquired ( 2,855 )

Net purchase price $ 305,263

Estimated fair value of tangible assets acquired and liabilities assumed

Accounts receivable 21,632

Inventory 11,095

Fixed assets 23,615

Other current and non-current assets 23,397

Accounts payable ( 3,777 )

Accrued expenses ( 390 )

Other current and non-current liabilities ( 56,659 )

Estimated fair value of net tangible assets acquired 21,768

Estimated fair value of identifiable intangible assets 117,470

Estimated goodwill 168,880

Estimated fair value of net assets acquired 308,118

Less cash acquired ( 2,855 )

Net purchase price $ 305,263

The amounts above represent the preliminary fair value estimates as of January 1, 2021 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates.

The preliminary identifia ble intangible asset estimate includes customer relationships of $ 69,327 with a useful life of 11 years, completed technology of $ 40,055 with a useful life of 10 years and backlog of $ 8,088 with a useful life of two years .

Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The estimated goodwill of $ 168,880 largely reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to the Company’s existing products and markets and is not deductible for tax purposes.

The goodwill from this acquisition is reported in the Mission reporting unit.

The Company has not furnished pro forma information relating to POC because such information is not material to the Company’s financial results.

The acquisition had an immaterial impact to the Company’s results of operations for the second quarter and six months ended January 1, 2021, given the proximity of the acquisition date to quarter-end .

A MERICAN P ANEL C ORPORATION A CQUISITION

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Since APC was a qualified subchapter S subsidiary, the acquisition is treated as an asset purchase for tax purposes.

The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes.

As of October 2, 2020, the Company had $ 50,649 of goodwill deductible for tax purposes.

The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount o ver 15 years for tax purposes.

As of January 1, 2021, the Company had $ 49,744 of goodwill deductible for tax purposes.

Fair Value of Financial Instruments

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at October 2, 2020:

Fair Value Measurements

October 2, 2020 Level 1 Level 2 Level 3

equity securities $ 1,964 $ 1,964 $ — $ —

Total $ 1,964 $ 1,964 $ — $ —

During the second quarter and six months ended January 1, 2021, the Company received gross proceeds and recorded a loss on sale of a cost-method investment of $ 1,538 and $ 426 , respectively.

The loss on sale of investment is included within Other expense, net in the Consolidated Statements of Operations and Comprehensive Income for the second quarter and six months ended January 1, 2021.

The fair value of the investment was based on a quoted price of identical instruments in an active market and was recorded at cost within Other non-current assets in the Consolidated Balance Sheet prior to its sale.

The carrying values of cash and cash equivalents, including money market funds, restricted cash, accounts receivable and payable, and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.

The Company recorded a loss on the change in fair value of a cost-method investment of $ 43 .

The change in fair value of these U.S.

equity securities was the result of an observable price change during the first quarter ended October 2, 2020.

Its fair value is based on a quoted price of identical instruments in an active market and is included within Prepaid expenses and other current assets on the Consolidated Balance Sheet as of October 2, 2020.

The loss on investments were included within Other expense, net in the Consolidated Statements of Operations and Comprehensive Income for the first quarter ended October 2, 2020.

The Company determined the carrying value of long-term debt approximated fair value due to variable interest rates charged on the borrowings, which reprice frequently.

Inventory is stated at the lower of cost (first-in, first-out) or net realizable value, and consists of materials, labor and overhead.

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Inventory was comprised of the following:

October 2, 2020 July 3, 2020

January 1, 2021 July 3, 2020

Raw materials $ 138,266 $ 111,225

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Total $ 218,410 $ 178,093

The $ 27,951 increase in inventory was due to an increase in overall demand, especially for larger, more complex integrated subsystems, and advanced purchases intended to mitigate potential disruptions to the supply chain or unforeseen changes in customer behavior resulting from the COVID pandemic.

The $ 40,317 increase in inventory was due to an increase in overall demand, especially for larger, more complex integrated subsystems, the acquisition of POC and the advanced purchases of inventory intended to mitigate potential disruptions to the supply chain or unforeseen changes in customer behavior resulting from the COVID pandemic.

During the first quarter of fiscal 2021, the Company reorganized its internal reporting unit structure to align with the Company's market and brand strategy as well as promote scale as the organization continues to grow.

In accordance with FASB ASC 350, Intangibles-Goodwill and Other (“ASC 350”), the Company determines its reporting units based upon whether discrete financial information is available, if management regularly reviews the operating results of the component, the nature of the products offered to customers and the market characteristics of each reporting unit.

A reporting unit is considered to be an operating segment or one level below an operating segment also known as a component.

Component level financial information is reviewed by management across three divisions:

Processing, Microelectronics and Mission.

Accordingly, these were determined to be the Company's new reporting units.

The internal reorganization and change in reporting units qualified as a triggering event and required goodwill to be tested for impairment.

As required by ASC 350, the Company tested goodwill for impairment immediately before and after the reorganization.

As a result of these analyses, it was determined that goodwill was not impaired before or after the reorganization.

In the first quarter ended October 2, 2020, the Company assigned goodwill to the new reporting units based on the relative fair value of transferred operations.

The following table sets forth the changes in the carrying amount of goodwill for the first quarter ended October 2, 2020:

The following table sets forth the changes in the carrying amount of goodwill for the six months ended January 1, 2021:

Balance at July 3, 2020 $ 614,076

Goodwill adjustment for the APC acquisition 346

Balance at October 2, 2020 $ 614,422

Goodwill arising from the POC acquisition 168,880

Balance at January 1, 2021 $ 783,302

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.

Restructuring

Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities.

During the first quarter ended October 2, 2020, the Company incurred net restructuring and other charges of $ 1,297 primarily related to severance costs associated with the elimination of 19 positions, predominantly in the manufacturing, sales and R&D functions.

These charges related to talent shifts and resource redundancy resulting from the internal reorganization the Company completed in August which created better alignment with its market and brand strategy as well as promote scale as the Company continues to grow.

Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete po st-acquisition integration activities.

During the six months ended January 1, 2021, the Company incurred net restructuring and other charges of $ 2,248 primarily related to severance costs associated with the elimination of 42 positions across the manufacturing, SG&A and R&D functions.

These charges related to changing market and business conditions including talent shifts and resource redundancy resulting from the internal reorganization the Company completed in the first quarter.

All of the restructuring and other charges are classified as Operating expenses in the Consolidated Statements of Operations and Comprehensive Income and any remaining severance obligations are expected to be paid within the next twelve months.

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Cash paid ( 1,528 )

Restructuring liability at October 2, 2020 $ 996

The Company recorded an income tax provision of $ 2,198 and an income tax benefit of $ 2,018 on income before income taxes of $ 17,996 and $ 17,229 for the first quarters ended October 2, 2020 and September 27, 2019, respectively.

During the first quarters ended October 2, 2020 and September 27, 2019, the Company recognized a discrete tax benefit of $ 2,480 and $ 6,127 , respectively, related to excess tax benefits on stock-based compensation.

The Company also recognized a discrete tax benefit of $ 443 related to foreign tax rate changes during the first quarter ended September 27, 2019.

The effective tax rate for the first quarters ended October 2, 2020 and September 27, 2019 differed from the Federal statutory rate primarily due to Federal and State research and development credits, excess tax benefits related to stock-based compensation, non-deductible compensation and state taxes.

During the first quarter ended October 2, 2020, there were no material changes to the Company's unrecognized tax positions.

Restructuring liability at January 1, 2021 $ 1,317

The Company recorded an income tax provision of $ 4,433 and $ 5,110 on income before income taxes of $ 17,119 and $ 20,786 for the second quarters ended January 1, 2021 and December 27, 2019, respectively.

The Company recorded an income tax provision of $ 6,631 and $ 3,092 on income before income taxes of $ 35,115 and $ 38,015 for the six months ended January 1, 2021 and December 27, 2019, respectively.

During the second quarters ended January 1, 2021 and December 27, 2019, the Company recognized a discrete tax benefit of $ 130 and $ 353 , respectively, related to excess tax benefits on stock-based compensation.

During the six months ended January 1, 2021 and December 27, 2019, the Company recognized a discrete tax benefit of $ 2,610 and $ 6,480 , respectively, related to excess tax benefits on stock-based compensation.

The effective tax rate for the second quarters and six months ended January 1, 2021 and December 27, 2019 differed from the Federal statutory rate primarily due to Federal and State research and development credits, excess tax benefits related to stock-based compensation, non-deductible compensation and state taxes.

During the second quarter ended January 1, 2021, there were no material changes to the Company's unrecognized tax positions.

R EVOLVING C REDIT F ACILITY

On September 28, 2018, the Company amended its Credit Agreement to increase and extend the borrowing capacity to a $ 750,000 , 5-year revolving credit line (the “Revolver”), with the maturity extended to September 28, 2023.

As of October 2, 2020, the Company's outstanding balance of unamortized deferred financing costs was $ 4,033 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive Income on a straight line basis over the term of the Revolver.

As of October 2, 2020, the Company was in compliance with all covenants and conditions under the Revolver and there were no outstanding borrowings against the Revolver.

There were outstanding letters of credit of $ 904 as of October 2, 2020.

On September 28, 2018, the Company amended the Revolver to increase and extend the borrowing capacity to a $ 750,000 , 5-year revolving credit line, with the maturity extended to September 28, 2023.

As of January 1, 2021, the Company's outstanding balance of unamortized deferred financing costs was $ 3,697 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive Income on a straight line basis over the term of the Revolver.

The Company drew $ 160,000 from the Revolver to facilitate the acquisition of POC.

As of January 1, 2021, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 160,000 against the Revolver, resulting in interest expense of $ 73 for both the second quarter and six months ended January 1, 2021.

There were outstanding letters of credit of $ 799 as of January 1, 2021.

Employee Benefit Plan

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The funded status may vary from year to year due to changes in the fair value of the Plan’s assets and variations on the underlying assumptions of the projected benefit obligation of the Plan.

The Plan's funded status at October 2, 2020 was a net liability of $ 12,337 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 31 and $ 7 in AOCL during the first quarters ended October 2, 2020 and September 27, 2019, respectively.

The Company recognized net periodic benefit costs of $ 413 and $ 296 associated with the Plan for the first quarters ended October 2, 2020 and September 27, 2019, respectively.

The Plan's funded status at January 1, 2021 was a net liability of $ 12,948 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 31 and $ 62 in AOCL during the second quarter and six months ended January 1, 2021.

The Company recorded a net gain of $ 8 and $ 15 in AOCL during the second quarter and six months ended December 27, 2019.

The Company recognized net periodic benefit costs of $ 420 and $ 833 associated with the Plan for the second quarter and six months ended January 1, 2021, respectively.

The Company recognized net periodic benefit costs of $ 296 and $ 592 associated with the Plan for the second quarter and six months ended December 27, 2019, respectively.

The Company's total expected employer contributions to the Plan during fiscal 2021 are $ 957 .

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S TOCK I NCENTIVE P LANS

The aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 2,862 shares, with an additional 710 shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”) at the time of shareholder approval of the 2018 Plan.

The 2018 Plan replaced the 2005 Plan.

At January 1, 2021, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 6,782 shares, including 710 shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”) and 3,000 shares approved by the Company's Shareholders on October 28, 2020.

T he 2018 Plan replaced the 2005 Plan.

The shares authorized for issuance under the 2018 Plan will continue to be increased by any future cancellations, forfeitures or terminations (other than by exercise) of awards under the 2005 Plan.

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The 2018 Plan provides for the grant of non-qualified and incentive stock options, restricted stock, stock appreciation rights and deferred stock awards to employees and non-employees.

All stock options are granted with an exercise price of not less than 100% of the fair value of the Company’s common stock on the date of grant and the options generally have a term of seven years .

There were 1,698 shares available for future grant under the 2018 Plan at October 2, 2020.

On October 28, 2020, the Shareholders of the Company approved 3,000 shares to be added to the 2018 Plan.

As part of the Company's ongoing annual equity grant program for employees, the Company grants performance-based restricted stock awards to certain executives and employees pursuant to the 2018 Plan.

Stock options must be granted with an exercise price of not less than 100% of the fair value of the Company’s common stock on the date of grant and the options generally have a term of seven years .

There were 4,669 shares available for future grant under the 2018 Plan at January 1, 2021 .

As part of the Com pany's ongoing annual equity grant program for employees, the Company grants performance-based restricted stock awards to certain executives and employees pursuant to the 2018 Plan.

Performance awards vest based on the requisite service period subject to the achievement of specific financial performance targets.

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E MPLOYEE S TOCK P URCHASE P LAN

The aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 1,800 shares.

At January 1, 2021, the aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 2,300 shares, including 500 shares approved by the Company's Shareholders on October 28, 2020.

Under the ESPP, rights are granted to purchase shares of common stock at 85 % of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period.

The ESPP permits employees to purchase common stock through payroll deductions, which may not exceed 10 % of an employee’s compensation as defined in the ESPP.

There were no shares issued under the ESPP during the first quarters ended October 2, 2020 and September 27, 2019, respectively.

Shares available for future purchase under the ESPP totaled 29 at October 2, 2020.

On October 28, 2020, the Shareholders of the Company approved 500 shares to be added to the ESPP.

There were 46 shares issued under the ESPP during the six months ended January 1, 2021.

There were no shares issued under the ESPP during the six months ended December 27, 2019.

Shares available for future purchase under the ESPP totaled 483 at January 1, 2021.

S TOCK O PTION AND A WARD A CTIVITY

6 unchanged sentences

Exercised ( 1 ) 5.52

Outstanding at October 2, 2020 2 $ 5.52 0.87

Outstanding at January 1, 2021 2 $ 5.52 0.62

The following table summarizes the status of the Company’s non-vested restricted stock awards and deferred stock awards since July 3, 2020:

5 unchanged sentences

Forfeited ( 21 ) 66.74

Outstanding at October 2, 2020 1,059 $ 69.80

Outstanding at January 1, 2021 1,036 $ 70.00

S TOCK - BASED C OMPENSATION E XPENSE

The Company recognizes expense for its share-based payment plans in the Consolidated Statements of Operations and Comprehensive Income in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).

The Company had $ 802 and $ 542 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended October 2, 2020 and July 3, 2020, respectively.

The Company had $ 1,026 and $ 542 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended January 1, 2021 and July 3, 2020, respectively.

Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period, net of estimated forfeitures.

The following table presents share-based compensation expenses included in the Company’s Consolidated Statements of Operations and Comprehensive Income:

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

Cost of revenues $ 369 $ 200 $ 664 $ 341

12 unchanged sentences

Europe Asia Pacific Eliminations Total

FIRST QUARTER ENDED OCTOBER 2, 2020

SECOND QUARTER ENDED JANUARY 1, 2021

Net revenues to unaffiliated customers $ 197,773 $ 12,812 $ 91 $ — $ 210,676

1 unchanged sentence

Net revenues $ 198,409 $ 13,376 $ 91 $ ( 1,200 ) $ 210,676

FIRST QUARTER ENDED SEPTEMBER 27, 2019

SECOND QUARTER ENDED DECEMBER 27, 2019

Net revenues to unaffiliated customers $ 181,381 $ 11,721 $ 811 $ — $ 193,913

1 unchanged sentence

Net revenues $ 182,035 $ 12,538 $ 811 $ ( 1,471 ) $ 193,913

SIX MONTHS ENDED JANUARY 1, 2021

Net revenues to unaffiliated customers $ 393,620 $ 22,475 $ 202 $ — $ 416,297

Inter-geographic revenues 876 908 — ( 1,784 ) —

Net revenues $ 394,496 $ 23,383 $ 202 $ ( 1,784 ) $ 416,297

SIX MONTHS ENDED DECEMBER 27, 2019

Net revenues to unaffiliated customers $ 343,377 $ 26,161 $ 1,679 $ — $ 371,217

Inter-geographic revenues 1,626 1,468 — ( 3,094 ) —

Net revenues $ 345,003 $ 27,629 $ 1,679 $ ( 3,094 ) $ 371,217

The Company offers a broad family of products designed to meet the full range of requirements in compute-intensive, signal processing, image processing and command and control applications.

11 unchanged sentences

The following table presents the Company's net revenue by end user for the periods presented:

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

$ 181,095 $ 171,624 $ 359,838 $ 329,099

8 unchanged sentences

The following table presents the Company's net revenue by end application for the periods presented:

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

$ 84,760 $ 48,328 $ 157,169 $ 86,247

13 unchanged sentences

The following table presents the Company's net revenue by product grouping for the periods presented:

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

Components (1)

14 unchanged sentences

The following table presents the Company's net revenue by platform for the periods presented:

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

$ 91,662 $ 106,301 $ 178,911 $ 192,458

9 unchanged sentences

Europe Asia Pacific Eliminations Total

October 2, 2020 $ 89,261 $ 5,479 $ 4 $ — $ 94,744

January 1, 2021 $ 119,455 $ 5,935 $ 7 $ — $ 125,397

July 3, 2020 $ 82,588 $ 5,144 $ 5 $ — $ 87,737

Identifiable long-lived assets exclude ROU assets, goodwill, and intangible assets.

Identifiable long-lived assets exclude right-of-use assets, goodwill, and intangible assets.

Customers comprising 10% or more of the Company’s revenues for the periods shown are as follows:

First Quarters Ended

October 2, 2020 September 27, 2019

Second Quarters Ended Six Months Ended

January 1, 2021 December 27, 2019 January 1, 2021 December 27, 2019

Raytheon Technologies 25 % 16 % 24 % 15 %

2 unchanged sentences

L3Harris Technologies * * * 11 %

37 % 42 % 39 % 53 %

* Indicates that the amount is less than 10% of the Company's revenue for the respective period.

While the Company typically has customers from which it derives 10% or more of its revenue, the sales to each of these customers are spread across multiple programs and platforms.

There were no programs comprising 10% or more of the Company's revenues for the first quarters ended October 2, 2020 and September 27, 2019.

There were no programs comprising 10% or more of the Company's revenues for the second quarters and six months ended January 1, 2021 and December 27, 2019.

Commitments and Contingencies

8 unchanged sentences

P URCHASE C OMMITMENTS

As of October 2, 2020, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations.

As of January 1, 2021, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations.

The purchase commitments covered by these agreements are for less than one year and aggregate to $ 132,021 .

5 unchanged sentences

The Company has evaluated subsequent events from the date of the Consolidated Balance Sheet through the date the consolidated financial statements were issued.

As of January 1, 2021, the Company held $ 61,626 of Restricted cash and recorded a Deferred consideration liability for a purchase price payout to the employee shareholders of POC.

This payout was made during the third quarter of fiscal 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements